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J.C. Penney Once Again Learns It Has to Listen to Shoppers

J.C. Penney (JCP)on Thursday reported a dismal set of holiday season numbers, yet its shares shot up 25%.

That paradox is explained by the fact that new CEO Jill Soltau made clear to investors that Penney would align its strategy to what customers want from it, not what executives hope they want.

Comparable sales fell 6% during the fourth quarter, a stark contrast to the excellent performances of rivals like Walmart and Target and even mediocre numbers from Macy’s and Kohl’s. And they came in below analysts’ expectations for a 4.7% drop, according to Consensus Metrix. What’s more, Penney said it would close another 18 stores (two years ago it closed 140) and not give financial forecasts for 2019, news that typically sinks stocks.

But Soltau, who came to Penney in the fall from JoAnn Stores, reassured Wall Street and made clear she will focus the department store on where it can perform well with an eye on long term results.

“We are providing strategic clarity to the team that we will always be about serving the customers and growing in a sustainable and profitable manner,” Soltau told analysts on a conference call. For good measure, she has filled a few key roles, like chief merchant, though some c-suite jobs remain vacant.

You would have thought that Penney would understand that need intimately from the trauma caused by its disastrous 2012 and 2013 efforts under former CEO Ron Johnson to be hipper when it tried to tell shoppers what it they wanted them to want, a strategy that nearly killed the 117-year-old chain.

But Marvin Ellison, the Penney CEO who bolted for Lowe’s (LOW) last spring, committed a similar misreading of his customer, albeit to much less detriment. Three years ago, Ellison, who had been a top executive at Home Depot for years before joining Penney, decided to bring back appliances, a category Penney had dropped in 1983 but one he knew inside out from his time at Home Depot. He was pinning his hopes on grabbing market share from a crumbling Sears and making better use of floor space at Penney.

What did Penney, which said last month it would exit the appliance business, get for its efforts in the category? A measly $315 million in revenue last year, or 2.7% of sales. On top of that, the move led to operating losses on what is a low margin but big-ticket category, and one that doesn’t generate much in terms of shopper traffic, a big problem given how many of the malls it occupies are struggling. Come in for a fridge and see you in 10 years.

Rather than improve its core business, particularly women’s apparel, Penney got distracted by appliances, where it was going up against much better equipped and capitalized rivals like Home Depot and Best Buy and never really stood a chance.

The lesson is that going into a line of business because that’s what a CEO knows well or what he hopes customers to take a liking to leads to retail trouble. During Ellison’s tenure, repeatedly had to mark down enormous amounts of women’s clothing that flopped with customers, killing profits but also losing ground to chains like Target and its increasingly popular clothing brands. (Incidentally, Penney’s new chief merchant is a Target alumnus.)

Soltau pledged that Penney would be much better attuned to customers. (Penney also tried to woo younger adult women a couple of years ago, only to lurch again and say last year it would double down on its core customers.)

All this flopping about comes at a time even focused competitors like Macy’s and Kohl’s are struggling to see big sales jumps. Adding to her to-do list, Soltau acknowledged that Penney had lots of work ahead of her on things like e-commerce (the top job there is still vacant), inventory management, better product assortment and taming shoplifting and merchandise loss. You know, the basics of the business, while competitors pull away.

Soltau herself said as much: “There is a lot of action we need to take to reestablish and repair the fundamentals of retail.”